The U.S. Air Force is already on the defensive about its plans for the KC-X competition, with a former top procurement official questioning the source-selection methodology and Northrop Grumman/EADS asserting it has been put at a disadvantage by the disclosure of its pricing data to rival Boeing. The Pentagon last week dismissed complaints from a Northrop Grumman executive on the pricing data claim. But the issue is already festering, potentially spoiling the Air Force’s hopes to have a KC-135 replacement on contract by mid-2010. Discussions continue between Northrop Grumman CEO Ronald Sugar and top Pentagon officials, according to Randy Belote, the company’s vice president for strategic communications.
"This is tantamount to a cost shoot-out that accelerates the race to the bottom," said Mitchell Waldman, a Northrop Grumman vice president, arguing that the Air Force has decided that cost is the overwhelming factor and that it doesn't matter how good a plane is. In the last contract bid, he said, the Air Force indicated it wanted certain new capabilities in the new tanker; now it's just about price.
Waldman refused to say whether the Northrop-Grumman-European Aeronautic Defence and Space Co. team would pull out of the competition if changes weren't made.
But Boeing backers on Capitol Hill say it's a replay of the previous competition, when Northrop-EADS, with the help of Sen. John McCain, R-Ariz., pressured the Air Force to change the ground rules by threatening not to bid. Northrop-EADS won that competition, but the award was overturned by the Government Accountability Office.
"This is just posturing and an attempt to tilt the competition in their favor," said Sen. Pat Roberts, R-Kan. "We have seen it before."
Rep. Todd Tiahrt, R-Kan., said it was all part of a Northrop-EADS public relations campaign.
"They are repeating what they did last time," Tiahrt said. "They make complaints and threaten not to bid. I don't think the Air Force will fall in the same trap this time."
Others whose states could benefit from Boeing winning the contract agreed with Roberts and Tiarht.
"We saw what happened when EADS demanded changes to the request for proposals last time," said Sen. Patty Murray, D-Wash. "The changes that were made to keep a foreign competitor at the table eventually led to the GAO ruling that the competition was neither fair nor transparent. The military can't go down that road again."
Rep. Norm Dicks, D-Wash., said, "Let them pull out."
For its part, Boeing said the last competition had been fought out "very publicly" and it wasn't going to engage in a public relations war this time.
"Our preference is to allow the process to play out rather than work the requirements for the media," Boeing said in a statement posted on its tanker blog.
The deadline for commenting on the Air Force's draft request for bids was last week. A final version of a request for proposals is expected to be released later this month. The contract is expected to be awarded sometime next year.
The initial contract will be for 179 planes, though the Air Force needs to eventually replace its entire fleet of roughly 600 Eisenhower-era tankers. The deal could ultimately be worth $100 billion, one of the largest contracts in Pentagon history.
The competition between Boeing and Northrop-EADS has been fierce. EADS is the parent company of Airbus, Boeing's chief rival in the commercial airplane market.
Boeing would use its 767 model for its tankers' airframe. The 767s are assembled at the company's plant in Everett, Wash. They could be converted into tankers in Wichita, but a Boeing official previously said the company will consider other sites as well.
The Northrop-EADS tankers would use an Airbus A330 airframe. The initial six or so Northrop-EADS tankers would be assembled in Toulouse, France, and the others at a new factory they have promised to build in Mobile, Ala. Construction on the new plant hasn't started.
Though the largest part of the tanker will be the Airbus A330 airframe, Northrop, an American defense company, is the lead contractor on the team rather than EADS. It is now referred to as an American tanker from Northrop-Grumman, with no mention of EADS.
This summer, the World Trade Organization, in a preliminary ruling, found Airbus had received illegal government subsidies to develop and launch the A330 and other aircraft it produces. The subsidies for the A330 have been estimated at about $5 billion
In a letter to the director of defense procurement at the Pentagon, Dicks said the Air Force needed to take into account the subsidy issue in the tanker competition. The Air Force, so far, has declined.
"In order to be fair, the request for proposals must be modified to neutralize the advantage that government subsidies give to one bidder," Dicks said.
Boeing won the initial tanker contract, but that was thrown out following a Pentagon procurement scandal involving the tanker. Northrop-EADS won the second competition, but government auditors tossed that one out.
Boeing has not said anything publicly about the comments it submitted on the draft request for bids.
Waldman and other Northrop officials made clear at a press conference last week that they believed the Air Force had made critical changes in the request for bids this time that put their company at a disadvantage. The new request for bids is "vastly different" than the one in the last competition, he said.
Among other things, Waldman said, bidders will have to meet 373 mandatory requirements that range from fuel off-load capabilities to the number of bathrooms and crew bunks on board. The problem, Waldman said, is that all of those requirements will be weighed equally, even though some are clearly more important than others.
In a letter to Defense Secretary Robert Gates, Sen. Richard Shelby, R-Ala., and seven other Alabama lawmakers said the Air Force's request for bids was "fundamentally flawed."
Shelby said the Air Force apparently does not intend to do any risk analysis of the bidders' costs and schedules. Shelby also said the Air Force is no longer factoring in which plane can carry more cargo and passengers as it did in the previous competition. The A-330 is a bigger plane the 767.
In addition, Northrop officials complained that the Air Force broke its own rules by releasing confidential pricing information to Boeing on the Northrop-EADS tanker during the earlier contract protest. The Air Force said it didn't break any rules and, anyway, the information is outdated.
But Randy Belote, Northrop vice president for corporate communication, said the Air Force needs to release similar Boeing information. Belote said Northrop is considering taking legal action because of the release of its pricing information or filing a Freedom of Information Act request in an effort to force the release of the Boeing information.
Belote and Waldman declined to speculate whether Northrop-EADS will pull out of the tanker competition if changes weren't made in the request for bids.
"It's premature," said Belote. "This is a 50- or 60-step process and we are on step five."
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